Since listing in 2007, Norcros plc (LON:NXR) has very much stuck to its knitting as a leading B2B producer of branded bathroom and kitchen products. Over time, the product portfolio has grown organically through new product development and inorganically via six acquisitions made since March 2013. Operating companies retain their individual business models and brand identities, but the benefits of a group structure have grown with its scale especially via supply chain and distribution channel synergies. Consequently, group revenue, profitability, margins and returns on capital employed have all been enhanced over the last five- and ten-year strategic periods and the company has been consistently cash-generative.
Sentiment has not favoured stocks perceived to be cyclical for some time and Norcros’ mid-to low-single digit valuation multiples belie the strength of its business model and market positions. Viewing FY24 as the earnings low point for the current cycle would, we believe, allow investors to focus on business fundamentals and consider mid-cycle prospects more fully. Based on current estimates, we see a fair value midpoint of 233p per share. Progress with strategic focus areas (including M&A activity) and stronger South African profitability could further enhance this picture.
